The public saga of billionaire Elon Musk and Twitter Inc. (TWTR) continues. The social media company is following through with its promise to pursue legal action after Musk last week said he is abandoning plans to buy Twitter for $44 billion. On July 12, Twitter filed a lawsuit to force Musk to complete the deal, which is likely to spark an extended legal battle over the fate of the company.
Musk, chief executive officer (CEO) of electric car giant Tesla Inc. (TSLA), has became the worlds wealthiest person as the value of his auto company has soared. Tesla's stock has plunged in recent months. While Musk planned to buy Twitter personally, it involved the sale of some of his Tesla shares.
- Twitter is suing billionaire Elon Musk in an effort to force him to complete his acquisition of the company.
- Twitter claims Musk has breached the merger agreement, including by disparaging the company and putting downward pressure on its share price.
- Some analysts say Twitter is obligated to act in its shareholder's best interest by pushing to make Musk go through with the $44 billion acquisition.
Twitter Says Musk Must Complete Deal and Purchase the Social Media Giant
Twitter filed the lawsuit in Delaware Chancery Court. In the first paragraph of the complaint, the company argues that Musk is required by law to follow through and buy Twitter. It also said that Musk is backing out of the deal now only because it no longer suits his personal interests: “Musk apparently believes that he —unlike every other party subject to Delaware contract law — is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away,” Twitter said in the complaint.
“Since signing the merger agreement, Musk has repeatedly disparaged Twitter and the deal, creating business risk for Twitter and downward pressure on its share price," the lawsuit says.
In the original deal contract signed in April, Twitter took steps to protect itself in case Musk tried to back out. It included a provision allowing it to sue to enforce the deal, known as a specific performance clause, as long as the debt that Musk secured for the deal is still in place. After the deal was signed, the broader stock market fell dramatically, pulling down Tesla's shares and thus Musk's wealth.
Musk openly complained about the amount of spam and bot accounts on Twitter's platform, demanding extensive new data from Twitter. The billionaire initially said that a primary reason he wanted to buy the company was to rid it of these kinds of accounts. His lawyers claim Twitter has refused to give complete information about the number of fake accounts on its site.
In Twitter's lawsuit, the company cites Musk's own tweets to show Musk was aware of the bot problem. “If our Twitter bid succeeds, we will defeat the spam bots or die trying!,” Musk tweeted. Twitter claims that Musk has breached the merger agreement repeatedly by violating a non-disparagement obligation and misusing confidential information.
The Bottom Line
On July 12, Twitter filed a lawsuit to force Musk to buy Twitter for $44 billion in the wake of the billionaire's announced plans to back out of the deal. The deal could spark a prolonged legal battle over the future of the social media company. Twitter has asked for an expedited trial in September, which is before the Oct. 24 acquisition deadline. The lawsuit may be resolved in one of several ways, including the following scenarios. The Delaware Chancery Court could force Musk to follow through with the $44 billion acquisition. It could bring the two parties back to the bargaining table and allow Musk to purchase the company for a discount. Or, if Musk is allowed to back out of the deal it could require him to pay a breakup fee, which is $1 billion, based on Twitter’s contract with Musk.